Public Bill Committee

[David Taylor in the Chair]

David Taylor: Good morning. Before we begin, I have a few preliminary announcements. Hon. Members may remove their jackets during Committee meetings if they wish. We are no doubt expecting a January heat wave. Hon. Members must ensure that mobile phones and pagers are turned off or switched to silent.
There is a money resolution in connection with the Bill, copies of which are available in the room. I remind hon. Members that adequate notice should be given of amendments. As a general rule, my fellow Chairman, Mr. Bercow, and I do not intend to call starred amendments, including any that are reached during afternoon sittings.
The Committee will first be asked to consider the programme motion on the amendment paper. I chaired the Programming Sub-Committee last week. Debate on that motion today is limited to half an hour. We will then proceed to a motion to report written evidence, followed by a motion to permit the Committee to deliberate in private in advance of the oral evidence session. I hope that we will be able to take those formally.
Assuming that the motion to deliberate in private is passed, the Committee will move into private session. Once we have deliberated, witnesses and others will be invited back into the room and the oral evidence session will begin. For those who are new to this procedure, which includes me, I should say that the evidence session will proceed under the Select Committee format. The one difference is that I will not lead in the same way as a Select Committee Chairman. I am not able to ask questions, but must hold the ring in an impartial way and bring people in as appropriate. I will also keep order, if that is a factor.
If the Committee agrees to the programme motion, we will hear oral evidence this morning and this afternoon before reverting to the traditional format next week.

Ian Pearson: I beg to move,
That
(1) the Committee shall (in addition to its first meeting at 10.30 am on Tuesday 27 January) meet
(a) at 4.30 pm on Tuesday 27 January;
(b) at 10.30 am and 4.30 pm on Tuesday 3 February;
(c) at 9.00 am and 1.00 pm on Thursday 5 February;
(d) at 10.30 am and 4.30 pm on Tuesday 10 February;
(2) the Committee shall hear oral evidence in accordance with the following Table:

Date

Time

Witness
Tuesday 27 January
Until no later than 12.30 pm
Financial Inclusion Taskforce; Institute for Fiscal Studies; Personal Finance Research Centre, University of Bristol; Citizens Advice.
Tuesday 27 January
Until no later than 6.30 pm.
British Bankers Association; Building Societies Association; Association of British Credit Unions Limited; Post Office Limited.
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 7.00 pm on Tuesday 10 February.
I welcome you to the Committee, Mr. Taylor. I am sure that all hon. Members are looking forward to serving under your chairmanship and that of Mr. Bercow.
We had a consensual Second Reading debate, with support for the general principles of the Bill from all parties. However, there are many details that hon. Members will want to explore.
The programme motion has been agreed to informally. Our intention is to conclude proceedings by 10 February. We think that that will allow sufficient time for the witness sessions and for full scrutiny of the Bill.
I draw the attention of Committee members to the list of relevant documents that has been circulated. They might find the consultation document on the saving gateway helpful. It was published in March last year, and I am sure that a number of hon. Members have read it. In addition, hon. Members might want to consult on the summary of responses to the consultation, which was published on the day the Bill was introduced in December. It sets out the changes that were made in response to the consultation document.
I do not think that it is appropriate for me as a Minister to ask questions of witnesses on my Bill. I therefore do not intend to participate in those sessions. However, I hope to pop in and out during the evidence sessions as time allows. I am sure that the Committee will be particularly interested to hear about the pilots that led to the final decisions on the detail of the Bill.

Mark Hoban: We are proceeding so far on a consensual basis, Mr. Taylor, so I suspect that we will not be troubling very much either you or your co-Chairman, Mr Bercow, in the heat of the debate on this Bill in Committee. Certainly, having gone through the Bill again, I suspect that we will spend more time discussing the statutory instruments when they come before the House than discussing the Bill itself, as it is predominantly an enabling Bill. We therefore have no problem with the programme motion as proposed.

Question put and agreed to.

Resolved,
That, subject to the discretion of the Chairman, any written evidence received by the Committee shall be reported to the House for publication.(Ian Pearson.)

Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.(Ian Pearson.)

The Committee deliberated in private.

On resuming

David Taylor: Good morning and welcome. Thank you for giving your time to help the Committee in its deliberations. We are going to hear evidence from Brian Pomeroy of the Financial Inclusion Taskforce, Matthew Wakefield of the Institute for Fiscal Studies, Sharon Collard of the Personal Finance Research Centre, University of Bristol, and Teresa Perchard of Citizens Advice. Welcome to our meeting today. Will you start by saying a few words about yourselves?

Brian Pomeroy: I chair the Financial Inclusion Taskforce, which advises the Treasury on a range of issues concerned with financial inclusion. About a year ago the topic of savings was added to our terms of reference, so since then we have included savings in our remit and have looked in particular at the saving gateway and given the Treasury our view of it. I personally took part in some of the early discussions between Treasury officials and potential providers of the saving gateway.

Matthew Wakefield: I am a senior research economist at the Institute for Fiscal Studies. My research involves issues of households savings decisions and of pensions and savings policy. I was involved in evaluating the second pilot of the saving gateway account.

Sharon Collard: I am a senior research fellow at the Personal Finance Research Centre based at Bristol University. We conduct social research around issues of personal finance and were involved in the evaluation of the first saving gateway pilot.

Teresa Perchard: I am director of policy for Citizens Advice, which represents the interests of Citizens Advice bureaux throughout England and Wales and the people who come to us for advice. We deal with 5.5 million problems a year and our single biggest area of work is debt. Most of our debt clients are on very low incomes and we are interested in providing them with more support to help them deal with income shocks.
I am a member of the Financial Inclusion Taskforce and, since the Governments decision to roll out the saving gateway was announced, have had several discussions with Her Majestys Revenue and Customs about the potential role of Citizens Advice bureaux in promoting saving gateway accounts when they are up and running. There is no fully formed action plan, but we have had discussions with the Treasury on that.

David Taylor: Before calling the first Member, I would like to remind all Members that questions should be limited to the scope of the Bill. I ask witnesses please to raise their voices, as the acoustics in this room are not wonderful.

Q 11

Stephen Ladyman: May I clarify, Ms Collard, whether you were responsible for evaluating the first pilot or both?

Sharon Collard: We were responsible for evaluating the first pilot.

Matthew Wakefield: I was part of the team evaluating the second pilot.

Q 2

Stephen Ladyman: If I could start with Ms Collard, could you tell us a bit more about how the first pilot was evaluated?

Sharon Collard: In terms of the method that was used?

Stephen Ladyman: Yes.

Sharon Collard: The first pilot was different from the second in that it concentrated solely on low-income households. We used a range of methods to evaluate it, including face-to-face interview surveys at the beginning and end of the scheme. We also conducted telephone interviews with what we called a comparison grouppeople who lived in areas adjacent to the saving gateway pilot areas who shared similar characteristics to the people who would be eligible for the saving gateway, to compare whether their saving behaviour would change over the period of the pilot. It was to find out what impact the saving gateway had, independent of other factors. We also conducted qualitative interviews with saving gateway participants at various stages in the course of the pilot.

Q 3

Stephen Ladyman: What proportion, roughly speaking, of the people who attempted to save did you make contact with as part of the evaluation?

Sharon Collard: I do not have that information with me. What proportion of people who opened accounts did we speak to?

Q 4

Stephen Ladyman: Yes. Essentially, you sampled them. You did not contact everybody.

Sharon Collard: No, nojust fewer than 1,500 accounts were opened. I need to check how many people took part in the surveys. I am sorry, I cannot remember off the top of my head.

Q 5

Stephen Ladyman: Mr. Wakefield, how was the second pilot evaluated?

Matthew Wakefield: The second pilot was a rather larger scheme. As Sharon has said already, it extended the eligibility criteria to include those somewhat higher up the income distribution. There were two parts to the evaluation. One was a kind of quantitative assessment in which we tried to assess whether people were saving more and how much more they were saving if they had the accounts than if they did not have them. In the six areas in which the accounts operated, we contacted a rather large set of people to sample. We offered approximately half of those the chance to open an account and did not offer that chance to the others. We surveyed them to understand their saving behaviour, so we had a comparison group with similar characteristics in terms of income levels and so on.
Alongside that quantitative evaluation was a series of qualitative work, which involved in-depth, face-to-face interviews with people who had accounts and account providers. The information for the quantitative survey was gathered through a telephone survey, which we followed up at two points during the operation of the accounts.

Q 6

Stephen Ladyman: Would it be fair to say that the evaluation of the first pilot focused on people who had a very low level of savingalmost no record of saving in the pastand the second pilot included people who had a record of saving?

Sharon Collard: I am sorry, there was a bit that I forgot to mention about the methodology. I think that I am right in saying that in both evaluations we analysed the account monitoring information. Is that true?

Matthew Wakefield: That is true.

Sharon Collard: We looked at the flow in and out of accounts over the period, to get an idea of how people saved in terms of amounts and regularity. Some 56 per cent. of the people in the first pilot whom we interviewed at the beginning of the saving gateway scheme had no money in saving accounts, and only 16 per cent. saved regularly into an account. More people than that would have had informal savings, for example money saved at home, but the saving gateway tried to encourage people to save in a formal product, and that was the level of account holding.

Q 7

Stephen Ladyman: But it would have been a higher level in the second pilot.

Matthew Wakefield: It was certainly a higher income group, therefore the individuals had some assets and the level of assets would have been higher. We know that income and savings correlate in that way, which makes sense.

Sharon Collard: Certainly, it would be true to say that among saving gateway participants in the first pilot, the tenants, as opposed to homeowners, were over-represented among the people who took up the scheme.

Q 8

Stephen Ladyman: So, coming back to Ms Collard and the first pilot, do you think that the lessons that your evaluation revealed are reflected in the Bill? Are there parts of those lessons that still have not been taken account of?

Sharon Collard: I think that by and large they have been taken account of. One of the things that we were slightly disappointed about was the level of match. Certainly, in the first pilot, what it showed was that it was pound for pound across the scheme. As well as it being a very good match rate, people appreciated the simplicity and transparency of that. But certainly they were asked in the first evaluation whether they would still be prepared to save at a 50p match. That certainly did not put people offthey still thought that that was very attractive.

Q 9

Stephen Ladyman: And, Mr. Wakefield, in the second pilot?

Matthew Wakefield: In the second pilot, partly because of the larger scope, if there was a group that we found that was possibly saving a bit more because of these accounts, it was the lower income subset of the people we evaluated. I think that that has been reflected in the way the Bill is set up and in the eligibility criteria. So that makes sense.
We tried to arrange a different match rate and found that moving from 50p to £1 had no appreciable effect on the effectiveness of the incentive that this account was providing. Again, the 50p rate seems to be reflective and quite sensible.

Q 10

Stephen Ladyman: Would both of you say that the 50p rate is still a very good incentive, for people who have not saved before, to save?

Sharon Collard: Yes, and it retains the transparency that people really liked.

Q 11

Stephen Ladyman: And when you evaluated the second pilot, presumably you saw a temptation for people to switch from other types of saving into what might have been seen as a more generous type of saving account.

Matthew Wakefield: Yes, of course, and that is one of the things that seemed to be more prevalent as you went higher up the income eligibility range. That is another reason why restricting the income and eligibility range is a way of avoiding people having the opportunity to do that kind of thing.

Q 12

Stephen Ladyman: Do you think that the measures in the Bill to do that are adequate?

Matthew Wakefield: If I understand correctly where the income eligibility looks like it will be set, I think that the range of income looks broadly sensible.

Q 13

Stephen Ladyman: Did you get any feedback in the evaluations, either from the first or the second one, about what people intended to do at the end of the saving period? Did they just intend to take the money out and blow it or had they actually thought in terms of long-term saving?

Sharon Collard: In the first pilot, most of the people that we spoke to in the survey at account maturity intended to continue saving post saving gateway, either regularly or as and when they could. We did some follow-up interviews up to where peoples accounts have matured three or more months earlier and, in the first saving gateway, peoples saving gateway accounts rolled over into a normal savings account. Three or more months after that, around 60 per cent. of the people we spoke to, which was a sample of about 700, had retained money in the default fund. Not all of them were still saving into it. Some of them had taken some money out, but retained some savings. Some still had all of their savings from saving gateway, plus the match funding, in there. We found that only one in 10 of the people we spoke to, in the post-maturity period, had no money at all in the savings account. So, there was quite a high retention within the account.

Q 14

Siân James: I would like to go back to eligibility now. We have heard it spoken about a little bit, and I would like to open it up to all of the witnesses. We know that eligibility is going to be passported, that there are seven passport headings in clause 3 of the Bill, and that there is scope for amendment. Are there any benefits that you believe should be added to or removed from the list in the Bill?

Sharon Collard: Personally, no. We have not suggested any. The fact that the eligibility scope can be amended easily through secondary legislation is really important, because the benefit system changes over time and peoples income and circumstances change. So, we would support the approach that is being taken to define eligibility in regulations.

Brian Pomeroy: I think the same. I would not suggest any changes to the categories in the Bill.

Q 15

Siân James: Do you think that that flexibility will ensure that no one can abuse the accounts at any time in the future?

Teresa Perchard: That is a different question. There is always going to be a balance that needs to be struck between having something that is simple to operate, for the consumer, the financial services providerswhether credit unions, banks or the post officeand the Government. Within that, there will be people who will be eligible who already have, perhaps, substantial savings, because savings amounts are allowed within some of the means-tested benefitsup to £6,000 or even up to £16,000. Unless an expensive system of targeting, recruitment and application is imposed, which will load costs on to the accounts and will also be a barrier to take-up, there is no guarantee that people will not take it up who do not, let us say, need it. If the intention is to attract people to save for the first time in their lives, or in their familys history, the Government have come up with an approach that gets the balance right.

Q 16

Charles Walker: Ms Perchard, you will be better briefed on this than I am. Would you remind the Committee and me what categories of people will be eligible for these?

Teresa Perchard: People on income support. On Second Reading there was a debate about whether only people on income-based rather than contribution-based jobseekers allowance should be eligible. Sticking with broad availability for both groups is appropriate; Ministers highlighted the fact that some people go in and out of contribution-based jobseekers allowance quite frequently if they are in and out of low-paid work. JSA offers an income of only £60.50 a week for adults over 25. Also eligible are people on incapacity benefit, and employment support allowancea new benefit which is moving towards a means-tested approach to providing for people who are unable to work due to disability and people on severe disablement allowance. We know that people with long-term disabilities are often living on a very low income, but some may be better off than others. It is difficult to know if it is not means-tested. Working tax credit is a key one. There are 6 million households on the tax credit system, but within the regulations the cut-off for eligibility is proposed to be set at £16,000 income, which is low. People on child tax credit are also eligible. Those are the main ones.

David Taylor: I remind Members that the list of eligible categories is in clause 3 of the Bill.

Q 17

Charles Walker: You say that £16,000 is low. Would you like to see that threshold raised in a perfect world?

Teresa Perchard: The fact that it is in secondary legislation means that it could be, and that seems a reasonable place to start off the scheme. It also aligns with some other approaches to eligibility, so it would be simple to operate. Also, the recipients may be eligible for other things because of their income level and how they are treated in the tax credit system.

David Taylor: Can we move on to the inculcation of a savings habit?

Q 18

Mark Hoban: In judging whether the project has been a success there seem to be three measures that we could use. One is persistencywhether it creates a savings habit in the long termanother is participation rates and another is whether it increases peoples net wealth and we are not just seeing a recycling of savings.
How will you know whether the project has been successful? What sort of rates should we see? Should we expect to see an increase in net wealth overall for participants? How much longer should we expect them to be safe from the things that Ms Collard said about the first pilot? What target should we be setting for participation rates for this to be successful?

Brian Pomeroy: I am not sure that I can specify a rate beyond what is indicated in the pilots. The pilots demonstrate that there would be a considerable positive effect, which is important. We know from our more general financial inclusion work that people on low incomes find it very difficult to save, but many people who think that they cannot save find that they can, if they are in the right structure with the right incentives. We have seen that with Christmas saving schemes, and the pilots certainly indicate that something positive would happen in this case. So I cannot give you a quantitative answer, but I will add a fourth indicator. Something that we hope will come out of the scheme, if the take-up is significant, is wider entry into financial inclusion. People who open saving gateway accounts and become connected with the financial systems for the first time may then go on to do other things, such as open a bank account if they do not already have one, and become familiar with other basic products, such as insurance. So, a fourth indicator from the taskforces point of view would be that this is a potential gateway, if you will excuse the double use of the word, into wider financial inclusion.

Q 19

John Howell: My question relates to the actual population, so it follows on nicely from that. In the evaluation, you highlight the fact that the scheme reached women but failed to reach men as significantly. Why was that, and what can be done to ensure a broader population reach?

Sharon Collard: Certainly in the first evaluation we saw that women were over-represented in the take-up of saving gateway. Other groups were over-represented as well compared to their proportion in the population such as Bangladeshis in one of the pilot areas, who traditionally have a very low take-up of formal savings. That over-representation is probably driven by the desire of women, especially those with families, to provide security for their children. Many of the reasons that some of the women gave for saving were related to their children, for example to buy things for Christmas and birthdays, and to improve the financial security of their children. But, while women were over-represented, men did take up the accounts. Single men on low incomes tend to be some of the poorest people on low incomes, so for them it is more difficult to save.
Coming back to the point about participation rates and making the scheme more attractive, in four of the five pilot areas for the first saving gateway the scheme ran alongside a community finance and learning initiative and was brokered through third-sector partner organisationsthat was the driver for participation. We cannot say much about whether people would have opted in because that is how they were recruited, but certainly when the scheme is rolled out the organisations that are partners in ensuring the take-up of saving gateway could be an important factor in encouraging men as well as women to take up the accounts.

Teresa Perchard: I would like to add to that. The gender split will have been driven by the fact that it is often women who will seek advice about money issues. Particularly in the first pilot, the recruitment and marketing was very local. It was provided by voluntary organisations such as Toynbee Hall in east London, which offered a whole range of advice and assistance, with bank account opening and budgeting for example. Perhaps that will have appealed more to women. So, it was not just like having a leaflet through your letterbox from a mainstream financial services provider; it was a very different kind of marketing, which will have driven the take-up profile.

Sharon Collard: I just wish to add that in one of the pilot areas the partner organisation worked very hard with local employerssupermarkets, for exampleto get them on board to promote the saving gateway to their low-income employees. That will be effective in meeting the needs of some of the men on low income, and also an effective way of generally promoting the scheme.

Q 20

Mark Hoban: Picking up on local partnering, I suppose that one of the questions that we ought to ask the potential providers, whom we will see this afternoon, is how they would have that marketing relationship work at a local level. It seems to be a key part of making the scheme work and getting the participation rates up.
A point that came out of one of the evaluations was that there was no statistically significant increase in net wealth. It was also suggested that some people with higher incomes were simply taking advantage of saving gateway and the matching, and that people who had previously been saving informallyperhaps just keeping a balance in their current accountwere saving more formally because of the saving gateway.
I would like to ask two questions from that. First, are the eligibility criteria in the Bill such that they will discourage people on higher incomes from using saving gateway to maximise their returns? Secondly, can we judge that saving gateway has worked as a product if it does not lead to an increase in peoples net wealth?

Matthew Wakefield: I think that the findings you are referring to probably come from the second evaluation, so maybe I should respond first.
When we carried out the quantitative assessment we found that the groups that had possibly increased their amount of savings were from the lower income subsetsthe groups that had less than approximately £16,000 of annual incomeso that conforms quite well with what is in the Bill. We found that for those people, it was clear that this account was resulting in more money in cash savingswhich is not surprising, this is a cash savings product. It also appears that they were spending less than they would otherwise have done on certain thingsin particular, food eaten outside the home, which is something that you might think is a luxury and it was not so bad that people were cutting back on it. Maybe it is good that they found savings from somewhere. You are right that we did not find any significant increase in their net wealth. Those three findings are quite messy. As those carrying out such data work will know, those three things should have added up: if there was any real increase in the savings coming from expenditure, then there should have been an increase in net wealth. We did not find that statistically significant: it may be that net wealth is too hard to measure. The evidence suggests that there may have been some increase in savings and net wealth, but it is hard to pin that downthere might have been a small increase, and it is for that lower income group. I think that that conforms quite well with what is in the Bill, and that the criteria for restricting saving gateway to a lower income subset have been carefully designed to discourage groups with more available wealthwhich is not new savingfrom moving it into this account.
Judging whether this account is creating new net wealth is very difficult unless the methodologies are repeated: it is hard to know the net wealth that that set of people would have had if they had not been offered the account.

Brian Pomeroy: I want to add a comment. Even to the extent that money that goes into saving gateway accounts is currently informally saved, there is a potential benefit. Money that is held insecurely may be at risk and is certainly not covered by a compensation scheme. We know that there are informal saving schemes, it is said, involving quite large sums of money in which the money is held by groups of friends or within a community. The extent to which those are brought into formal schemes that are properly regulated and protected is itself a benefit, even if there is not an increment in total saving.

Teresa Perchard: I want to suggest a focus not so much on net wealth as on the economic resilience of the groups that will use the account. We see this as being beneficial to some of the people with multiple debt problems whom we advise. The economic crisis that caused them to tip from managing their payments to not managing was a very small financial shock, extra expenditure of less than 10 per cent. of their income, a dip in their income or something such as the cost of a funeral. We found that only 10 per cent. of our debt clients had any sort of positive balance in a current or savings account. Only 3 per cent of them have life insurance. The people with debt whom we are advising do not have a rainy-day pot, a reserve to call on, should a major item break or they have a major expenditure of even a few hundred pounds, at which point they might need to draw on either informal or quite expensive forms of borrowing. If any of our clients manage to save as much as £25 a montha huge amount for many to findthey would ultimately have a good liquidity buffer in the event of a future economic shock. You may see that as being wealth, but it is actually resiliencetheir capability to deal with financial shocks which are small for us, but huge for them. That is why we support it the scheme. If people have that sort of pot set aside for a rainy day, it can help to prevent the untold stress of future debt problems.

Stephen Ladyman: I want to pick up on this point because I can see the benefit of protecting yourself against a financial shock. However, if you hit that shock near the end of your maturity period, and are not quite eligible for the extra money, is there a danger that you might be tempted go into unfortunate forms of borrowing to try and preserve the money in the account?

Teresa Perchard: Absolutely. There are four main issues in making this effective. The first is simplicity and ease of access, which includes access points. The second issue relates to the information, guidance and support provided to get account users into the system and set them up with a budget. A lot of the services provided on the pilots were about helping people to budget in order to be able to afford save. This might mean reorganising other financial commitments and helping account users with benefit take-up, too. There are billions of pounds of unclaimed tax credits, so let us get more money into peoples pockets when they set up these accounts.
Thirdly, there is the general question whether it will workwill people be able to budget effectively through the period and achieve the end result? The first pilot suggests that quite a lot would, but only with a lot of information and support at the beginning and throughout. It cannot work without that sort of service. Finally, in terms of affordability, one of the issues we have been raising is whether creditors who are owed money will allow people to continue to make savings into this account, while also repaying their debts. This relates to creditorssome of the banksactually forgoing an expected weekly debt repayment in order to allow their customer to continue saving. That is important because next time people get into difficulty, they may have to draw on the money, which would erode the build-up of their capacity to deal with future problems. I hope that has answered your question.

Matthew Wakefield: May I actually come in on the point that Dr. Ladyman raised? If I understood correctly, you said that just before their account matures these people might go into unfortunate forms of debt because they want to preserve their saving gateway. The design of the account can protect people against that because the match will be paid on the highest balance achieved during the course of your account period. If people suddenly need their money three months before the end of the account, they can withdraw it and still get the match on the money paid in up to three months before the end. If account holders understand that, they will access their money just before the account maturity, should they need it for a rainy day. In this regard, the account is cleverly designed.

Q 21

John Howell: I fully accept the point about how the account can be a hedge against shocks and how it can help with short-term budgeting. However, one of the claimed benefits for the scheme is that it allows and helps foster long-term planning. Did you see any of that coming out of the pilots, and how was that evidenced?

Sharon Collard: As we have already discussed in relation to the first saving gateway, there was evidence of persistence in the short term. Obviously, we could only look three to six months post maturity, but most people had maintained money in the default savings account. The impacts on attitude are another area that could have a longer lasting effect. People talked about feeling that they had more financial security, as a result of having some savings behind them. Some people felt that they had more financial control. So, in the first pilot, there were some quite significant changes in peoples attitudes towards savings; it seemed to be inculcating a savings attitude or a habit of saving. Obviously, we were not able to test it beyond three to six months after the end of the scheme, but we would certainly hope that those sorts of attitude would persist into the longer term.
People felt that they were encouraged to keep saving during the scheme, because of the financial incentive, and they felt very positive about it. That was aligned to a more positive attitude towards savings among the participants, which was of statistical significance, compared with the comparison group in that respect. There was also some hardening of attitudes among the saving gateway participants in the use of credit. So, while they were credit users, their attitudes towards using credit had rather hardened into a more negative stance. So we saw a kind of pro-savings, slightly anti-credit move over the course of the pilot.

Q 22

John Howell: Did you not see any transfer away from savings into other long-term issues, such as insurance? The groups of people who participated are often those who have minimal insurance for either their homes or their possessions.

Sharon Collard: No, that is a good point. Unfortunately, the evaluation did not cover the take-up of other products. There was very low cross-selling by the saving gateway provider, so we do not know very much about which other products people might have taken out.

Teresa Perchard: The one factor that was picked up from the summary of the first pilot was that 32 per cent. of participants said that they were more likely to plan for retirement. Getting people to do something about it is another matter, obviously. But that was a group who were on very low incomes. Getting people on higher incomes to plan for retirement or even to engage with the issue is a challenge. The evaluation was in 2005. There were some very positive signs of the experience of engaging people in issues that they might not otherwise have thought were for them. You cannot start too early on planning for retirement, can you? No.

Q 23

Edward Timpson: I think that you have answered the first question that I was going to pose about the temptation for people to borrow in order to save and how we can mitigate those circumstances. May I pick up on the second point, which Brian touched upon, about the fourth indicator of people becoming more financially included by becoming involved in the saving gateway scheme? Account providers may be tempted to offer them other types of facilities, including credit facilities and other schemes, which may appear more attractive than the saving gateway account itself, because of the interest rate or whatever. People who take on the saving gateway account, who perhaps do not have the financial experience, may get sucked into other schemes that, on the face of it, are savings; but on the back end of that, they may get themselves into more debt. What protection will the Bill provide to such people to ensure that they do not end up in a worse position than before, as a result of entering into the scheme?

Brian Pomeroy: I am not sure to what extent protections are in the Bill, but all of us who have looked at this and commented on it have stressed the need for support and advice for people at two points in time at least. The first point is when they have to decide whether they will take up the offer of a saving gateway account, and the second point is when the account matures. What do they do next with that money? What do they put it into? It is vital that there should be support. That could be done through the existing mainstream providers of advice, such as Citizens Advice and the independent sector and the new money guidance service. The champions initiative is something that our taskforce has initiated in areas of high deprivation. It is important that people have somewhere to go to ask for advice at those two points in time at least.

Q 24

Edward Timpson: From reading the feedback and the data that you managed to put together in the document, it would appear that most people were rather reticent. Although they said that they wanted guidance, they were reticent about taking it up; they felt that they already had the fiscal knowledge and responsibility to do it on their own. Is that a concern if you are seeking to provide them with that knowledge to protect themselves?

Brian Pomeroy: Speaking personally, I think that that would be a concern if someone who had never really had a savings product before felt that, after a two-year period, they would automatically have become sufficiently financially capable to go ahead into other funds without advice. An important part of the communication that needs to surround the launch of the saving gateway is to point out that advice is available, and people should not hesitate to take advice if they are not sure what to do next.

Sharon Collard: May I just make the point that there were two elements to the first saving gateway pilot? There was the kind of advice that we have talked aboutthe partner organisations providing advice and help to open saving gateway accounts. There was also the community finance and learning initiative, running alongside it, which offered things like courses in financial education, where there was evidence of very low take-up. Those are two very different things, and what we are talking about here is the need for advice through mechanisms, such as money guidance and similar things, to help people to make decisions, rather than putting them on a six-week course or something like that. Evidence suggests that that kind of financial education initiative was not very effective, but that does not mean that people do not need advice and guidance.

Teresa Perchard: You are right to identify the risk that a customer who is dealing with a fairly large financial institution may receive a lot of offers of other products and services, as a result of opening a savings gateway account. Certainly, in our experience of promoting the take-up of basic bank accounts, which are very safe and cannot be overdrawnall the all the banks have been offering themwe have come across many cases where people, perhaps people with learning disabilities or with income from benefits, who we advised to look for one of those accounts, have gone into a branch and come away with a full-service account and a credit card with a limit of £2,500. Their parents just shook their heads in horror.
It is very difficult to get large, very impersonal financial services providers to deal with people as individuals. The protection from over-marketing to that group is not in the Bill or in any of the regulations, as far as I am aware. The Government will have to forge with the providers an understanding of how that group of customers will be treated, so that although they are included and not treated as charity cases and have the experience of being mainstream, well-respected customers whose custom is wanted, they are not taken advantage of at the same time if they lack experience. That will be difficult to achieve, but if we can get providers competing to attract such business, they should do so on the basis that they treat those customers properly. They should be trusted providers, not any old provider who walks up and says that they will do it, but I am not sure how you can regulate for thatunless you can take away the right to run these accounts from providers who behave badly in some way. I am not sure whether there is a fall-back to be able to do that.

David Taylor: We will drill down a bit into the operation of the accounts.

Q 25

Jeremy Browne: Good morning, everyone. I think that we might have already dealt with the question that I was going to ask first of all, but just in case we have not done so fully or to your satisfaction, I will ask it. Are you satisfied that the 50p rate is the optimum level and that it will maximise savings and minimise the cost of the scheme?

Matthew Wakefield: I think that, on the second evaluation of the evidence, we could not see any difference between the effect of the incentive of providing a pound for a pound, as opposed to 50p for a pound. Probably, there was less of an effect from having a 20p match rate, so picking a match rate in the middle therefore seems to be in line with what the second evaluation suggested.

Q 26

Jeremy Browne: But 50p is extremely high.

Matthew Wakefield: It is true that 50p is still extremely generous.

Q 27

Jeremy Browne: I bet that most people who try to save money get about 1 or 2 per cent. if they are lucky. With a 50 per cent. rate, you would expect people to be incentivised.

Matthew Wakefield: For money paid in during the last month of the account, the interest rate is effectively much more than 50p. It is a very generous incentive.

Q 28

Jeremy Browne: Are we just being cavalier with the costs for that group? Could people be incentivised at a rather lower cost?

Matthew Wakefield: The 20p match rate did not seem to have the same effect. Of the three that were trialled, the 50p match rate seemed to be the most sensible option. The cost of providing such accounts is restricted by the eligibility criteria. Only a certain number of people will open the accounts, because of the £25 a month limit on the amount that can be paid in while receiving the match.

Q 29

Jeremy Browne: Could more money be put in with a lower rate? Could you dangle a smaller carrot in front of more people? Would that help the overall savings culture that Mark touched on?

Matthew Wakefield: Again, from the evidence of the second pilot, I think that 50p is about right for the match rate. It was not clear that the low income group strongly wanted the ability to pay in a larger amount per month. Of course, people who had the cash available would have paid in more and got the match on that.

Q 30

Jeremy Browne: Does everyone agree with Matthew on the 50p rate? Yes. Thank you.
Another issue is what happens at the end of the two years. Should the money that has accrued be transferred into tax-free products? Again, this touches on Marks point about the savings habit taking hold. Interestingly, the issues are competing in a way. We also talked about a buffer, which would give people a sense of security, because they would not be running their finances on empty the whole timea little would be put aside for difficulties, such as the washing machine breaking down.
Most people would feel that the scheme had not worked if, at the end of the two years, people blew the sum total on a one-off purchase, such as a second-hand car. My point is about the degree to which people need incentivisation to save beyond the maturity of the term. That has been touched on; we have been discussing similar issues. When people are used to the extremely generous 50p, everything else in the real world might seem pretty unenticing.

Teresa Perchard: We would not support a requirement for the money to be locked into something else after two years. To save successfully for two years and come out with the match is a huge achievement. Creating a scheme in which you can have the money only if you spend it on something worthy would be very complicated. There are debates over doing that with the child trust fund and over what will happen with the money at the other end.
We must accept that different people will make different choices and that we will approve of some and not of others. The task is to persuade people to think about making different choices. The debate about dumping the money into an individual savings account at the end complicates the issue. At some point, you would have to provide the customer with full disclosure information about creating an individual savings account. There are many types of ISA, so there would also be an issue over choice. Would that be dealt with when the account is opened or when maturity approaches? Our preference is for the account to run on as a simple savings account with interest. The customer would then have time in which to decide what to do and when to do it. It is the customers choice at the end of the period.

Q 31

Jeremy Browne: For what it is worth, I am inclined to agree that the more simple the scheme, the less people will fear that they have to read small print. That improves the incentives. My only anxiety is that constituents may write to me asking why money that could be spent on improving schools and hospitals is being spent on generous subsidies that might be blown on luxurious holidays that they cannot afford, because their income is slightly higher than the eligibility limit for the scheme. If I were to receive such a letter, would you be good enough to draft a reply to address the constituents concerns? What would you put in that reply?

Brian Pomeroy: I am not sure whether I have a draft for your letter, but it is important that people feel free to do what they want with the money and not to be locked into some other product. After all, they are allowed to take the money out during the currency, and that is important because this vulnerable group may need money at short notice. That might happen at any time, even during the first two years or after the maturity. As others have said, some kind of support and advice about where to go next is important. Equally, since we know that some people will do nothing, there needs to be a default option, such as a very simple saving account. Perhaps if the saving gateway account could be simply converted into something that is interest-bearing, clearly, even if the saving gateway itself were notdepending on what the provider decides to do about itit would just carry on. As to whether it would be tax free, a large proportion of people would not be paying tax. As the saving gateway is partly designed to counter the fact that people who pay tax get tax relief, I would have thought that there was a case for it being a tax-free product.

David Taylor: Shall I bring Stephen in and then come back to you, Jeremy?

Q 32

Jeremy Browne: I was going to talk about tax free later, but if I do it now, I will spare everyone. May I just summarise? The default option would be a savings account, which you would prefer to be tax free? Is there a consensus that that is a wise way forward?

Teresa Perchard: If the money stays in a fairly simple, safe vanilla savings account and the customer decides later whether to have an ISA and, if so, with whom, the money is far less likely to be withdrawn and spent on a second-hand motor. In terms of your constituent, we have a major issue in this country about savings for the long term, and it has got worse. We cannot afford in future the level of publicly funded pension support for our increasingly ageing population. It makes sense in terms of value for money to invest in getting people into the savings habit now, so that future generations are not bearing a greater cost.

Q 33

Jeremy Browne: It is not going into a pension plan; it is going to a nice holiday in Tenerife.

Teresa Perchard: It is getting people into a savings habit. There is inertia about banking. Everybody hates their bank but will not shift accounts. If the money is there and people feel proud of what they have achieved, there are ways to encourage them to leave as much as possible there. You just have to keep giving people the messages and encouraging them. We have personal accounts coming in 2010people will get lots of marketing messages about saving for retirement at that time, and they will need to make choices between, say, saving gateway and personal accounts, perhaps for those who are in work. It is a good way to engage people to think about saving for the longer term.

Matthew Wakefield: In terms of what it rolls into, I agree that the option of a simple cash account is probably a good idea. Apart from the issues around disclosure of information that I am not fully on top of, I do not see why, if it is possible to organise, it should not be an ISA that is tax freejust a cash ISA that operates as a cash savings account. That would be a sensible strategy. The money that comes from your saving gateway may not count against your ISA limits in the year that it rolls in. That would be sensible. So, maybe, I slightly differ from Teresa.

Q 34

Stephen Ladyman: I am worried about the complexity. Mr. Pomeroy said that most of the people who save in these accounts will not be income tax payers, so, surely, an ISA would be a very bad investment for those people. Where is the advice going to come from that is going to be sufficiently customer-oriented to take account of whether you are going to benefit from an ISA, whether you would be better off putting the money in a Post Office savings account, which assumes that you are not a basic rate tax payer?

Matthew Wakefield: If your cash ISA has instant access, it is providing the same kind of service, so I am not sure that I can see the distinction.

Q 35

Stephen Ladyman: Do you know of a cash ISA that pays the same rate for a non-basic rate tax payer as a National Savings Post Office account?

Matthew Wakefield: I have not looked into that issue.

Q 36

Stephen Ladyman: I am trying to get some financial advice here; I might be interested in it after this.

Matthew Wakefield: None of us is a financial adviser, and I am sure that we cannot legally give financial advice.

Q 37

Stephen Ladyman: That makes my point for me. If you, who have studied it, are wondering about where the best place to put your money is, how is a person with no experience of saving or navigating their way through the marketplace going to make that decision, unless there is a very clear pathway to help them?

Matthew Wakefield: There is an issue of complexity and of making it a product, so the saving gateway is provided by someone and then the account rolls into a product provided by someone else. Surely, adding that layer of complexity is not straightforward either. The other thing is that these people may not be income tax payers while they are on the saving gateway or, indeed, when they come to the end of the gateway period, but if they become income tax payers in the future, it is beneficial for them to have interest rolling up in a form that is not taxed.

Q 38

Edward Timpson: From what we understand, the regulations will make it impossible for anyone to have more than one saving gateway account in their lifetime. First, is that the right approach? Secondly, if it is not, in what circumstances can you envisage it being right for someone to have the opportunity to have either simultaneous or consecutive accounts? I am trying to imagine scenarios in which people have already opened an account but have had to close it at a later stage through defaulting, withdrawing or a change in their eligibility status. There may be a point at which, because their circumstances change again, they want to open a further account. I might be wrong about thatMatthew is furrowing his brow and I bow to his better knowledge. Can we hear the arguments for and against regulations to limit the number of accounts that an individual can open in their lifetime?

Sharon Collard: There is an argument for individuals being allowed to have only one account, because, to a certain degree, that would counter Mr. Brownes constituents concerns about possible abuse and how the generosity of the scheme plays out among lower-income people. People being allowed to have it as a one-off only would certainly be a safeguard.
We also need to remember that the aim of the saving gateway is to kick-start a savings habit. The idea is for it to provide an initial boost to get people into a savings habit. There is evidence that that can happen, but, obviously, there is a need for advice about how to save post-saving gateway. Therefore, I certainly think that there is an argument for having only one shot, as it were, at the saving gateway. In terms of eligibility, I do not know what the regulations will say about changes of circumstance, but it needs to be made clear whether somebody who is eligible at the beginning and then becomes ineligible because their income increases can retain their savings in the saving gateway account and receive the match funding. I do not know whether that has been discussed.

Brian Pomeroy: I would say that there is a clear distinction between giving a second chance to someone who has had an account and has let it run for two years and giving a second chance to someone who, for some reason or other, has had their account interrupted or whose circumstances have changed. On the first, it is right that they get only one shot, because the basis of the scheme is that it should be a kick-start. If it fails, it does not work, but we hope that it will work. I do not think that we should contemplate a second chance at this stage. For people who for some reason, perhaps out of their control, find that their account is truncated or that they have lost eligibilitythe second categoryit would be right to make some provision in principle, but I cannot give you more detail without visualising precisely the circumstances in which that would take place.

Teresa Perchard: My understanding is that if you qualify and get your chitty from HMRC, then open an account and suddenly get a much better paid job, you do not lose your eligibility to keep running the account. That makes it simpler. One of the key changes of circumstanceI confess that I have not looked at the detailmight be when the account is joint and the couple separates. One or both partners might need another chance to open and run an account, if they otherwise qualified. But I am not sure what consideration the Government have given to the sort of changes that might affect peoples ability to maintain access to the account that they opened.

Sharon Collard: My understanding is that individuals in a couple are eligible, rather than there being a joint account. That would overcome that problem.

Matthew Wakefield: You can certainly see the argument for not wanting someone rolling up money in a saving gateway account, the gateway period then ending and their just opening another account and using the same money to roll up their match again. You would not want people to be eligible straightaway at the end of the gateway period, so you need either a window of a number of years in which people cannot have another account, or a rule that there should be only one per lifetime. That is a broadly sensible strategy.

David Taylor: Okay. We will move into the area of providers and products.

Q 39

Charles Walker: Have you given any thought to who will provide the accounts? Will it be banks, credit unions or building societies? The banks are giving evidence this afternoon, and basically their line will be, Whats in it for us? They do not seem to have a huge amount of social corporate responsibility when it comes to providing savings vehicles for people on low incomes. Will the banks have a part to play, or will more socially responsible organisations deliver the accounts?

Brian Pomeroy: The first thing to say is that I hope that there will be a range of providers, not just banks but third sector organisations. We know that credit unions are interested because they have said so. Very positively, the Post Office will be an important player in this area. We know from our more general work on financial inclusion that some institutions are trusted more than others, particularly by people who have not had much contact with financial services. Many people have a fairly deep distrust of banks and other financial institutions, but they will trust credit unions if there is one near them, and they certainly trust the Post Office. Having a range of provision is important.
Obviously, I do not know whether the banks will be providers. You are going to speak to them this afternoon. As I have said, I sat in on the early meetings between the Treasury and the banks, when this matter was being explored. What I heard the banks generally say was that they were prepared to engage in a discussion and to consider providing the product. They raised a number of pointsthis is all on the record; they have published their viewsabout complexity of various sorts, some of which have been taken into account in the Bill and the new formulation of the schemes detailed operation. All that I can say is that the banks appeared to be interested and willing to listen, but that they made the point about complexity. They also said that saving gateway accounts might not be a very profitable product for them and that they would factor that in. I cannot tell you which institutions from that group will offer the product. Perhaps you will find out this afternoon.

Charles Walker: So, they are not rushing to embrace the scheme, but they are willing to listen.

Brian Pomeroy: What I say is on the basis of the early meetings. They were willing to attend meetings and to listen. The Treasury held detailed operational meetings as well, to hear the practical concerns that the banks might have about how the scheme works, how matching was calculated, statements and so forththe practical details, which are all very important. They appeared willing to listen, but I cannot give you an up-to-date situation report.

Sharon Collard: I agree with Brian that ideally we want to have a range of providers, not least to maximise accessibility for the saving gateway participants. In both the first and second pilots, there was only one provider. In the first evaluation, we found that for some people in some areas that was a problem because the designated branch was not local to them. About two thirds of people were making deposits in personin cash or by chequerather than using an electronic method, and that would suggest that having a range of providers so that somebody can chose one that is local and convenient is important. Obviously, it is not a very attractive account for the banks to take on, but then neither were basic bank accounts when they were first introduced. There is a role for credit unions, but the coverage of credit unions in the UK is not great. We cannot rely on the third sector to deliver these types of accounts because that would result in many people being excluded. That would be offset to some extent by the Post Office being involved.

Teresa Perchard: If I may add a note of slight positivity about the attitude of the banks, you may find very different views in different institutions, perhaps looking at their track record in promoting and developing their basic bank account. There are 8 million eligible people here, a lot of whom already have bank accounts with one of our largest financial services providers. We are talking about people who are already their customers and the ability to offer people with basic bank accounts a saving product alongside it. I am sure that some banks that have already committed a great deal to developing their basic bank account as a mainstream product, have added features to it and have not kept it under the counter as much as others do, will be more positive about it than others. It will not be universal. Each business will have a different attitude to serving customers on lower incomes. There is the segmentation issue. Physical access points are very important, and credit unions do not have that geographical coverage, particularly of a walk-in branch network, to match the Post Office or the banks put together.

Sharon Collard: In the first pilot evaluation in at least two of the four areas where there were partner organisations, the partner organisations did the necessary identity checks and the interviewing for the saving gateway account. That reduced the administrative burden on the providers quite considerably. So there is potential there for the administrative burdens on the providers to be lessened.

Matthew Wakefield: The issue of physical access also came up in the second pilot. There was some evidence that people were more likely to open saving gateway accounts if they lived near to a branch. So having a range of providers would help with that. It is also possible that if we are to reach the set of people who do not already have some savings, it may help to have third sector organisations involved which these people interact with and trust.

Q 40

Mark Hoban: On the issue of paying interest on the accounts, I can see from the account providers perspective that this may be a cost that makes providing the accounts unattractive. For the customers it might be quite an important incentive on top of the matching benefit. What are your views on the pros and cons of requiring these accounts to pay interest?

Teresa Perchard: I have strong views on this. If this product is designed to get people who have not been saving into the savings habit and it does not include the key feature that you would find in a standard savings account, you are losing the opportunity to engage people with the idea that they earn interest on the money that they put aside. What you are giving them is 50p in the pound, only for them to come out at the end of the day extremely disappointed to find that you cannot get anything like that on the open market. So if you are not providing the interest messageyes, I know that it is a disappointing one at the momentyou are losing that educative opportunity. You are misleading people about what the 50p is. They think that it is interest, and it is not. So I find it difficult to see how it can be tolerable that the accounts will not be interest bearing, even if it is only at the very modest rates that we currently see in such small-value, instant-access accounts. I realise that the point was raised extensively on Second Reading as well. You miss an opportunity to educate the customer if interest is not a feature.

Brian Pomeroy: I agree with that in principle, but I personally feel more comfortable than Teresa with the way the Bill is drafted. It is up to the provider. It would be unfortunate if the Treasury were to mandate a rate of interest and as a result killed off interest in being a provider. If the choice were between interest being mandated and very low provision and interest not being paidbearing in mind that the saver gets the matchand reasonably full provision, I would go for the latter. That is why taking the product as a whole, I feel more comfortable with the payment of interest not being mandated. Having said that, it is highly desirable that providers should offer interest, even if it is at a low amount, for the reasons given by Teresa. I am more comfortable with that being voluntary than with it being mandated.

Sharon Collard: In principle, I agree with Teresa. The issue is how to cope with the transition to another savings account without disappointing people hugely. People in the first saving gateway were attracted to the match funding because they did not understand tax relief or how interest rates worked. There is therefore an issue of the complexity of adding interest to a saving gateway account.
Finally, if interest was included in a saving gateway account, my understanding is that it would no longer be sharia compliant. Such accounts were presented as sharia compliant in the first and second evaluations because they were not interest-bearing.

Mark Hoban: I agree with Sharons last point.

David Taylor: We have covered taxability, but I believe that Jeremy wishes to raise questions on the interest.

Q 41

Jeremy Browne: My question is on tax and the range of providers. Instinctively, I am an enthusiast for competition, but when confronted by a range of mobile phone providers, I never understand which rate is better for me. I end up getting whichever phone looks best or the one that my friends have. There is notional competition, but for a consumer such as me, the complexity is such that I do not derive the benefits from it.
I am a little fearful that the points Brian Pomeroy made might be good in theory, but that in practice, people who have not saved previously might be intimidated by the range of schemes on offer. They might think that ultimately all such schemes are bound to rip them off one way or another, but they just do not understand how. Particularly given that state-owned banking is such a rage these days, if there was a single provider with a reassuring brand such as the Post Office that paid a modest but uniform rate of interest, some people who might otherwise have felt intimidated or suspicious might be inclined to bite in a way that they would not have done otherwise. I am not sure that I believe that, but I am interested in whether any of you do.

Matthew Wakefield: Perhaps I should not speak for everyone, but there was something of a consensus that it would be nice if the range of providers included not just mainstream financial services providers but providers from the third sector. That deals with the issues you have raised to some extent. I do not think that the issue is whether there should be one provider or many, but whether third sector providers would come into the market alongside mainstream financial services. I confess that I do not know how attractive this product is to that range of providers. However, it would be nice if they came in.

Q 42

Jeremy Browne: The counterpoint to the point that I just made is that if I had a bank account, I might be seduced by the scheme if I could open it with my bank. I would be put off if there was only one supplier and it did not happen to be my bank. On the basis that people bank with all different institutions, do you agree that we must allow them all to offer the scheme?

Sharon Collard: There is evidence from the baseline survey undertaken at the inception of the child trust fund, which includes a range of providers and products, that people tended to open their child trust fund account with providers that they already had a relationship with, whether through a bank account or another childrens saving account.

Brian Pomeroy: And of course, the trusted Post Office product that you referred to will hopefully be available, although it will not be the only one. We know that the Post Office will provide something.

David Taylor: I think that we are on to our final section of questions, which relate to penalties and appeals.

Q 43

Stephen Ladyman: You have all acknowledged that the 50p rate is very generous. Some people will therefore try to exploit it, perhaps by having more than one of the accounts in their lifetime or by opening an account that they are not entitled to. Do you think that the proposed penaltywhich is, I think, £300is a sufficient disincentive to them? Do you think that the suggested mechanisms will be adequate for picking-up people who try to exploit the accounts?

David Taylor: Who wants to pick up that question?

Matthew Wakefield: I am trying to pick it up. I think that the balance that can be built up with the account£300is quite substantial, because of the limits on the match rate and on the amount that can be built and managed per month; thousands of pounds cannot be built up and managed with only one account. For penalties to work, you have to fine people. I think that it will help if the account is passported off and is relative to certain benefits. If the eligibility tests for benefits are working, people will get the voucher to open the account. That will ensure that only eligible people can open one.

Q 44

Stephen Ladyman: Perhaps I can put it to you a slightly different way. At the moment, the Bill says that people who deliberately or carelessly mislead will be subject to the penalty; we will come back to what careless means in a minute. My concern about the £300 is that someone who deliberately misleads is probably not going to deliberately mislead once; they may well open 500 accounts under different names. Clearly, if it is a major front, £300 is not going to be a disincentive. Do you see obvious loopholes and obvious ways that people could criminally exploit the system?

Jeremy Browne: Do not say it on the record if you do.

Teresa Perchard: The confession that I have is that I have not looked at that part of the Bill. As you have raised the question, you could perhaps imagine markets opening up to buy cash-needy people out of their accounts for lower amounts as they approach maturity. There might be business opportunities for illegal moneylenders. I do not know whether either of the pilots identified thatperhaps they were not running long enough or not run in a way that would leave scope to identify open-market exploitation in communities where people are vulnerable. It might be a good idea to think about whether there is any scope for that; certainly £300 is not a huge amount to someone who is setting up a factory buying people out of their accounts for less than they would receive on maturity.

Q 45

Stephen Ladyman: What about the definition of careless? With careless, the £300 penalty is probably reasonable. It would be careless, in a sense, to think that people were entitled to open a second accounta person is only allowed to open an account once. Do you think it is going to be easy to define what careless means?

Teresa Perchard: Well, it is difficult. If someone carelessly leaves their voucher letter from the HMRC in a flat that they had already left, and they had notified the HMRC of the change of address, and somebody else picked it up and opened an account in their name, that could be difficult. It is better to focus on the person who has taken advantage, rather than on the person that might not have taken the care and attention that a Minister or civil servant might. It could be quite complex: pretending to be an eligible person should be the issue, not losing, leaving or being unaware of the letter of entitlementwhich is the way to open an account.

Stephen Ladyman: I can see Mr. Pomeroy is getting agitated.

Brian Pomeroy: I had not read the Bill; I have been trying to read clause 19 while you were speaking. Am I wrong in thinking that carelessness applies to the provider, rather than the individual? Someone who deliberately makes an incorrect declaration gets a £300 fine. Am I wrong in saying that the carelessness provision is for providers who make wrong returns to the HMRC, rather than individuals?

Stephen Ladyman: That is not the way I look at it, but you might be right, and I will look at it again.

Brian Pomeroy: I read it very quickly as you were speaking.

Q 46

Stephen Ladyman: But do you think that £300 is about right?

Sharon Collard: I think that it is very difficult to say. As Matthew said, people are passported from eligible benefits that, I hope, they are entitled to. We also have money laundering regulations in place, so we can undertake identity checks. That is another form of check. Those checks would, I hope, rule out somebody using somebody elses voucher. For fines that deal with tax compliance to be effective, it is crucial that you know about them. You are not going to put off people who are determined to defraud the system no matter what£300 would not do itbut the penalties have to be clear.

Q 47

Stephen Ladyman: One other area of exploitation is continuing eligibility, which I may have to explore with the Minister in Committee. Being on jobseekers allowance is one of the eligibility criteria, but we hope that people are not going to claim jobseekers allowance for the two years necessary for the account to mature. If somebody opens an account when they first become unemployed, who do they declare it to when they get a job again and are therefore no longer entitled to the gateway saving account?

Sharon Collard: I think that there have to be clear regulations about what happens to people in that situation.

Teresa Perchard: I understood that eligibility continued, so at the point you are eligible, you can have the voucher and open an account. Your circumstances changing does not remove your entitlement to the account. That makes it simpler.

Q 48

Stephen Ladyman: So are you saying that, in the unlikely event of the people of South Thanet turfing me out at the next election, in the short period while I was claiming JSA, I could open a gateway saving account?

Teresa Perchard: You will be one of those people on JSA who is in and out of low-paid work perhaps. That is the trade-off between having something that is simple to design, deliver and market and that does not have too many costs and being able to weed people out of the system.

Sharon Collard: If the premise is that people remain eligible even if their circumstances change, I would like to point out that people moving off income support and JSA are unlikely to be moving into highly paid employment. We know that that is the case. They may still continue to be eligible, because they will be on working tax credits.

Matthew Wakefield: And moving off those benefits and seeing that they have a stream of income coming in might be exactly the right time for them to think about whether they want to start saving.

David Taylor: I think that that question from the hon. Member for South Thanet brings us to the end of our session if you do not have any further questions. On behalf of the Committee, I thank the four witnesses for giving their time and expertise. There were some very helpful observations and advice to prepare us for the line-by-line examination of the Bill, which starts next week. The Committee will sit again at 4.30 this afternoon. The room will be locked between now and then, so any material that hon. Members have can be left here with confidence. I would normally call the Whip to move that further consideration on the Bill be adjourned, but I will ask the hon. Member for South Thanet to do so.

Ordered, That further consideration be now adjourned. (Dr. Ladyman.)

Adjourned till this day at half past four oclock.